Morgan Stanley Global Brands, M&G Global Basics and Rathbone Global Opportunities are some of the funds making the IA Global sector’s highest average five-year returns, with FE Trustnet research showing that small-cap portfolios also stack up well.
A recent survey by investment research and advisory business Platforum showed that the second most commonly used metric by UK financial advisers is funds’ five-year rolling returns. They come after performance relative to the sector and ahead of the most recent three-year return.
How advisers independently review fund performance
Source: Platforum, January 2017
With this in mind, FE Trustnet is looking at the best performers from the major Investment Association sectors using this measure. To do this we took the rolling five-year total returns over the 49 quarterly periods spanning 1 January 2000 to 31 December 2016 and worked out the average.
On the final page we show the top 30 members of the IA Global sector ranked by their average five-year return but over the bulk of the article we focus on five funds that are sitting at the top of the charts. To make the article more relevant, we’ve only looked at the funds available on most platforms and those with a track record spanning at least 25 of the 49 five-year periods.
Morgan Stanley Global Brands
5yr rolling return vs sector and index
Source: FE Analytics
First up we have the £885.9m Morgan Stanley Global Brands fund, which has FE Alpha Manager William Lock at the helm and five deputies behind him. Over the 36 rolling five-year periods of track record, the average return was 73.07 per cent. The biggest five-year gain seen in this time frame was 118.23 per cent while the smallest was 32.14 per cent. As its name suggests, the fund is built around some of the largest household names with its portfolio being topped by the likes of Reckitt Benckiser, Unilever and L'Oreal. The high quality compounders favoured by the fund suffered last year as growth stocks lagged value but the managers remain optimistic, saying: “Even if the compounders do not come back into favour in the near-term, their combination of steady growth and cash generation should protect the returns they offer over the medium term.”
Cumulative return to 31 Dec 2016 vs sector and index
Source: FE Analytics
M&G Global Basics
5yr rolling return vs sector and index
Source: FE Analytics
This £2bn fund, which is managed by Randeep Somel and Jamie Horvat, aims for long-term growth by investing in companies considered to be beneficiaries of long-term shifts or trends in the global economy. In the past, this meant a focus on mining & metals but the mandate was widened to other areas such as luxury goods and tech. While the fund is overweight basis materials, it also has a bias to areas like technology and healthcare through stocks such as Microsoft and Johnson & Johnson. Over the past 49 rolling five-year periods, M&G Global Basics’ average total return has been 74.66 per cent; the highest was 246.60 per cent while the weakest was a 9.60 per cent loss. As the graph shows, the bulk of outperformance came during the commodity boom towards the start of the period, while more recent years have been more challenging.
Cumulative return to 31 Dec 2016 vs sector and index
Source: FE Analytics
Rathbone Global Opportunities
5yr rolling return vs sector and index
Source: FE Analytics
Rathbone Global Opportunities, managed by James Thomson, is in third place with an average five-year rolling return of 75.27 per cent. The biggest five-year return was 191.39 per cent while the lowest stands at 6.69 per cent. The £947.9m fund invests in businesses that can grow their earnings faster than their rivals, which tends to result in higher weightings to mid-caps and more economically sensitive stocks. That said, FE Alpha Manager Thomson ensures that around 15 per cent to 20 per cent of his concentrated portfolio is in slower-growing, more stable companies to offer a degree of ‘weather-proofing’. The largest positions at the moment are Amazon.com, Facebook and Aurelius.
Cumulative return to 31 Dec 2016 vs sector and index
Source: FE Analytics
McInroy & Wood Smaller Companies
5yr rolling return vs sector and index
Source: FE Analytics
FE Alpha Manager Tim Wood’s £84.2m McInroy & Wood Smaller Companies funds comes in second place with an 88.50 per cent average five-year rolling return over its 44 periods of track record. The highest return was 172.46 per cent during this time; the lowest was 27.11 per cent. As its name suggests, the fund concentrates on global smaller companies although 31 per cent of the portfolio in UK names. Its top holdings are US Physical Therapy, Watsco and Anika Therapeutic. McInroy & Wood defines ‘smaller’ as companies that are not usually included in the leading equity indices. “Over the past 30 years global investment institutions have come increasingly to dominate the leading investment markets. Their buying naturally has been concentrated on the biggest and most liquid stocks, rather than smaller companies, however attractive their values and prospects may be,” the firm said.
Cumulative return to 31 Dec 2016 vs sector and index
Source: FE Analytics
Baillie Gifford Global Discovery
5yr rolling return vs sector and index
Source: FE Analytics
In first place we have the £243.4m Baillie Gifford Global Discovery fund with an average five-year rolling return of 95.32 per cent. Across its 49 periods of track record, the fund has made a maximum five-year return of 256.96 per cent while it posted a 21.31 per cent loss in its weakest period. The fund, which has been headed up by FE Alpha Manager Douglas Brodie since May 2011, also focuses on global smaller companies, which helps to explain its outperformance. The portfolio is built around companies with strong management and innovative products; IP Group, iRobot and Alnylam Pharmaceuticals are examples of its largest holdings. The FE Research team said: “Although in isolation the fund is high risk, it could be well suited as an addition to an already diverse global equity allocation that is lacking smaller company exposure.”
Cumulative return to 31 Dec 2016 vs sector and index
Source: FE Analytics
Source: FE Analytics